Annual Report

MemoriaAnnual Report Anual 2019 CONTACT Hendaya 60, Floor 14, Office 1401, Las Condes, Santiago CP 7550188, Casilla 186 - Correo 34, Santiago Telephone (562) 2588 6000 Fax (562) 2331 5153 www.csav.com SHAREHOLDER SERVICES DCV Registros S.A. Huérfanos 770, Floor 22, Santiago, Chile. Telephone: (562) 2393 9003 [email protected] INVESTOR RELATIONS Felipe Rodríguez Investor Relations Telephone: (562) 2588 6047 [email protected] ANNUAL REPORT 2019 Index 1. 2. MAIN FIGURES 04 OUR COMPANY 10 CHAIRMAN’S REMARKS 06 CSAV Profile 13 Corporate Governance 14 History 18 Ownership and Control 22 2 Compañía Sud Americana de Vapores S.A. 3. 4. 5. OUR BUSINESS 24 ADDITIONAL INFORMATION 68 FINANCIAL REPORTS 98 Container Shipping Industry 26 Basic Information 70 Financial Statements 99 Container Shipping Business 34 Articles of Incorporation 70 Management Analysis 216 Vehicle Transport Industry and Business 36 Properties and Facilities 70 Summary Financial Statements 247 Consolidated Results 40 Regulatory Framework 71 Statement of Responsibility 254 Risk Management 44 Trademarks, Patents and Licenses 74 Investment and Financing 52 Stock Market Statistics 75 People 56 Dividend Policy and Payment 76 Environmental Management 60 Compensation 77 Directors’ Committee Annual Report 80 Board Training 87 Material Events 88 Corporate Structure 90 Information on Associates and Subsidiaries 91 Summary of Subsidiary Ownership 96 2019 Annual Report 3 MainAs ofFigures December 31, 2019 CSAV INDICATORS CSAV Assets CSAV Equity CSAV Net Income 2,517 2,224 125 US$ million US$ million US$ million CSAV’s Interest CSAV’s Investment in in Hapag-Lloyd Hapag-Lloyd over Total Assets 27.8% 86.1% CONTAINERS SHIPPED Hapag-Lloyd Hapag-Lloyd Hapag-Lloyd Volume Transported Revenue EBITDA 12 14,115 2,223 million TEUs US$ million US$ million VEHICLES SHIPPED CSAV CSAV CSAV Volume Transported Revenue EBITDA 327 93 20 thousand tons US$ million US$ million 4 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 5 Chairman’s Remarks In 2019, CSAV achieved its best result since the merger of its container shipping business with Hapag-Lloyd in 2014, with net income of US$ 124.6 million, representing growth of 585% over the previous year. DEAR SHAREHOLDERS: Despite the significant challenges faced As we have explained on other occasions, by our industry in 2019, we can be satisfied the 2008 crisis left the industry with many with our good results and the long-term shipbuilding orders and global growth in prospects for the Company. the container shipping business below traditional trends, leading to growth close The industry has been operating under to that of global GDP. Accordingly, this highly demanding global conditions. triggered numerous consequences for Weak global economic growth—below the industry, such as mergers, suspended 3% for the first time in ten years—was investments, large operating alliances, compounded by the “tariff war” between bankruptcy for some companies and other China and the United States, with import consequences. Today we can be reasonably tariffs that directly impacted our business. certain that in general the key industry Furthermore, shipping companies indicators measuring balance, such as have had to adapt to the new IMO 2020 comparing current supply with demand, emissions standard, especially during and comparing the forecast orderbook with the last quarter of the year, as it became estimated demand growth, are aligned and effective worldwide from January 1, do not indicate any destabilization risks. 2020. This process is driving the largest environmental transformation within shipping companies. 6 Compañía Sud Americana de Vapores S.A. At the beginning of 2020 the orderbook Hyundai Merchant Marine joined THE related to the performance of Hapag- represented less than 10% of the total Alliance, which is the global alliance that Lloyd’s container shipping business, which fleet. This indicator measures predicted Hapag-Lloyd belongs to, thus making it reported its highest net income since 2010 supply growth over the next two or three stronger and extending it through to 2030. of US$ 418 million. This figure is 670% years, and it has reached a record low, higher than in 2018. Operating cash flows which confirms the success of industry In 2019, CSAV achieved its best result generated during the year reduced its consolidation efforts, through mergers since the merger with Hapag-Lloyd in financial debt by US$ 981 million, which and acquisitions, and the benefits of 2014, with net income of US$ 124.6 million, included prepaying a US$ 450 million bond operational coordination achieved by representing growth of 585% over the scheduled to mature in 2022. the three global alliances. In particular, previous year. This increase is mainly 2019 Annual Report 7 These achievements are the result of has been fundamental in aligning the several years of hard work to build a highly company’s strategic objectives. Our efficient company, which incorporates current shareholder agreement expires the synergies arising from the mergers at the end of 2024 and the objective of with CSAV in 2014, with the United Arab achieving 30% before that date is related Shipping Company in 2017, and cost-cutting to CSAV retaining its “grandfather rights”. programs that had already achieved US$ Even if we are not included in the controlling 1,200 million in annual savings by 2019, shareholder agreement, these rights grant to which a further US$ 200 million will be us the option to buy more shares and reach added by 2021. These accomplishments 51% of the company’s capital, without the have positioned HLAG as one of the most obligation to make a public offer for all efficient shipping lines in the industry. the issued shares. Notwithstanding our commitment to extend the controlling Hapag-Lloyd has continued to deploy a shareholder agreement beyond 2024, we strategic plan initiated in 2018 with targets believe that this option leaves CSAV in a for 2023, in order to strengthen its long- better position to achieve its objective of term competitive position. Its objectives maintaining influence and control over are to become a leading company in terms Hapag-Lloyd’s future. of service quality and set itself apart for its customer focus, to maintain its We have selectively acquired shares on strong global position especially in niche the stock market, in order to achieve this and expanding markets, to improve the shareholding objective. At the beginning profitability of its business supported of 2020, we reached 30% by acquiring by further advances in digitalization a significant package from the Qatar and automation and to increase its Investment Authority (QIA) after a long organizational agility. negotiation. Total payments including this latest acquisition total US$ 450 million, The objectives defined by CSAV’s Board which has taken our holding from 25.86% include the important achievement of to 30%. This has been financed with bonds attaining a 30% interest in Hapag-Lloyd. issued by CSAV and bridge loans mainly As widely known, CSAV controls this granted by our controlling shareholder, German shipping company together with Quiñenco. Therefore, CSAV’s Board has the City of Hamburg and Kühne Maritime. communicated through a material event Our influential and active participation that it will have to increase its capital, which 8 Compañía Sud Americana de Vapores S.A. is expected to take place during 2020, introduced LNG to fuel a vessel in 2019. depending on capital market conditions for However, to a large extent it has chosen debt and equity. to buy the better quality fuel and seek a mechanism to transfer this extra cost to its We decided to terminate the vehicle customers. This is undoubtedly one of the transport (RoRo) business towards most important challenges for the year and the end of 2019 in order to focus the overcoming it will be important in order to Company’s management on our main meet our financial objectives. asset, our investment in Hapag-Lloyd. This business has been a longstanding part of A challenge with another order of CSAV, although it no longer represents a magnitude is of course the COVID-19 significant part of our financial assets or outbreak throughout the world, which has performance. very strongly affected Asia, Europe and the U.S., and these are very important markets I would like to take this opportunity to for our global business. Although it is still thank our RoRo customers for trusting and too early to estimate the impact of this preferring our services in this business pandemic on our business, the Company segment for many years, as well as all our has focused on safeguarding the health of employees for their valuable professional our employees, maintaining operational and personal dedication and commitment, continuity and improving our liquidity, especially in sustaining the Company as without affecting the flexibility of our cost an active, competitive and highly visible structure. operator during these last few years. Finally, I would like to thank our Looking ahead to the challenges in 2020, shareholders and employees for their it would appear that complying with the tremendous commitment and dedication IMO 2020 standard is fundamental. This to the growth of our Company. new regulation requires the industry to use more refined and significantly more Yours sincerely, expensive fuel, effective as of January. Hapag-Lloyd’s strategy to tackle this problem included retrofitting some of its vessels with scrubbers that comply Francisco Pérez Mackenna with the standard, and a pilot plan that Chairman of CSAV 2019 Annual Report 9 Our Company 10 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 11 MAIN CONTAINER BUSINESS INDICATORS 1.7 239 2.5 121 million TEUs of container ships million TEUs of transport services transport capacity container capacity 6 392 129 12,996 regional centers sales offices countries employees 12 Compañía Sud Americana de Vapores S.A.

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